SEC Press press_release 9 KB 5,672 chars

Fleet's Columbia Mutual Fund Adviser and Distributor to Pay $140 Million to Settle SSEC Fraud Charges for Undisclosed Market Timing

Release: 2005-15
Caption: Securities and Exchange Commission v. Columbia Advisor, et al.

summary

Columbia Management Advisors and Columbia Funds Distributor paid $140 million to settle SEC fraud charges for secretly permitting market timing in mutual funds from 1998–2003, violating prospectus disclosures and harming long-term investors, while five former executives faced sanctions or pending fraud charges.

paragraph

Columbia Management Advisors and Columbia Funds Distributor agreed to pay $140 million—$70 million in disgorgement and $70 million in civil penalties—to settle SEC fraud charges for undisclosed market timing arrangements in Columbia mutual funds between 1998 and 2003. The SEC found that the firms allowed select investors to engage in frequent short-term trading, accepted 'sticky assets' in exchange, and failed to disclose these arrangements to shareholders or independent trustees, directly contradicting fund prospectuses. Three executives—Peter Martin, Erik Gustafson, and Joseph Palombo—accepted settlements with fines and suspensions, while two others, James Tambone and Robert Hussey, were charged with civil fraud in federal court.

narrative

Columbia Management Advisors and Columbia Funds Distributor agreed to pay $140 million to settle SEC fraud charges for secretly permitting market timing in Columbia mutual funds from 1998 through 2003, violating explicit prospectus disclosures that prohibited short-term trading. The firms entered into undisclosed arrangements with at least nine investors, allowing them to engage in frequent trading in exchange for 'sticky assets'—long-term investments that boosted advisory fees—while concealing these deals from shareholders and independent trustees. Columbia Advisors knew of and approved all but one of these arrangements, despite being aware that such trading harmed long-term investors through dilution and increased transaction costs. The SEC also found that hundreds of additional accounts engaged in excessive trading that the firm failed to prevent. Five former executives were held accountable: Peter Martin, Erik Gustafson, and Joseph Palombo settled with monetary penalties and suspensions from industry roles, while James Tambone and Robert Hussey faced pending federal civil fraud charges for approving illicit trades that enriched the firm and themselves at shareholders’ expense. The settlement funds were designated for distribution to harmed investors, and the firms agreed to cease-and-desist orders, censure, and comprehensive governance reforms. The SEC’s investigation was conducted in cooperation with the New York Attorney General’s Office.

Enriched metadata

Scheme: market-manipulation (100%)
Court: District of Massachusetts
Outcome: settled
Disgorgement: $50,000
Civil penalty: $70,000,000

Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →

Extracted insights

Dollar amounts 7

$140.00M $140 MILLION $100M–$1B
$140.00M $140 million $100M–$1B
$70.00M $70 million $10M–$100M
$100K $100,000 $100K–$1M
$100K $100,000 $100K–$1M
$50K $50,000 $10K–$100K
$10K $10,000 $10K–$100K

Entities 13

person columbia advisor
person columbia distributor
company columbia management advisors, inc.
person erik gustafson
person fiduciary duty
person fraud charges
company fundamental trust
person james tambone
person joseph palombo
person peter martin
person robert hussey
agency Securities and Exchange Commission
person undisclosed timing arrangements

Triples 13

Columbia Management Advisors, Inc. will pay $140 Million
SEC charges Five Former Columbia Executives
SEC brought Fraud Charges
Peter Martin entered into Undisclosed Timing Arrangements
Erik Gustafson breached Fiduciary Duty
Joseph Palombo ignored Indications of Improper Trading
James Tambone entered into Undisclosed Timing Arrangements
Robert Hussey entered into Undisclosed Timing Arrangements
Columbia Distributor violated Fundamental Trust
Columbia Advisor agreed to pay $70 Million in Disgorgement
Peter Martin will pay $10,000 in Disgorgement
Erik Gustafson will pay $100,000 Penalty
SEC bars Joseph Palombo

View original SEC press releasesec.gov

Extracted body text (5,672c)

FLEET'S COLUMBIA MUTUAL FUND ADVISER AND DISTRIBUTOR TO PAY $140 MILLION TO SETTLE SEC FRAUD CHARGES FOR UNDISCLOSED MARKET TIMING FOR IMMEDIATE RELEASE 2005-15 SEC Also Charges Five Former Columbia Executives for Conduct Relating to Market Timing Arrangements Washington, D.C., Feb. 9, 2005 -The Securities and Exchange Commission today announced the settlement of an enforcement action against Columbia Management Advisors, Inc. (Columbia Advisors), Columbia Funds Distributor, Inc. (Columbia Distributor), and three former Columbia executives in connection with undisclosed market timing arrangements in the Columbia funds. In settling the matter, the Columbia entities will pay $140 million, all of which will be distributed to investors harmed by the conduct. The SEC also brought fraud charges against two additional former Columbia senior executives in federal court in Boston. In separate orders, the SEC found that Peter Martin, former national sales manager, entered into several undisclosed timing arrangements that were inconsistent with the funds' prospectus disclosures, and that Erik Gustafson, formerly a Columbia portfolio manager, breached his fiduciary duty to the funds by approving four such arrangements. In addition, the SEC found that Joseph Palombo, formerly the chief operating officer of Columbia Advisors and chairman of the board of several Columbia funds, ignored indications of improper trading and failed to take appropriate action. In its complaint filed in federal district court today, the SEC alleged that two former employees of Columbia Distributor - co-president James Tambone and senior sales executive Robert Hussey - entered into or approved undisclosed timing arrangements with multiple investors that benefited the executives but were detrimental to long-term fund shareholders. David P. Bergers, Associate District Administrator of the SEC's Boston District Office, said, "Columbia Distributor and Columbia Advisors violated a fundamental trust when they placed their own interests ahead of their clients' interests. This $140 million settlement ensures compensation to injured investors and sends the clear message that such conduct will be firmly punished." Columbia Advisor and Columbia Distributor agreed, without admitting or denying the SEC's findings, to pay $70 million in disgorgement and a civil penalty of $70 million. The entities also consented to orders censuring them, ordering them to cease and desist from future violations and requiring them to undertake certain compliance and mutual fund governance reforms to enhance internal protections for investors. Without admitting or denying the SEC's findings, Martin, Gustafson and Palombo agreed to the entry of settled orders requiring them to cease and desist from future violations. The SEC's order requires Martin to pay $10,000 in disgorgement and a $50,000 penalty and suspends him for twelve months from association with any broker-dealer, investment adviser or investment company. Gustafson will pay a $100,000 penalty and serve a twelve-month suspension from association with any investment adviser or investment company. Palombo will be suspended for six months from association with any investment adviser or investment company, followed by a twelve-month suspension from serving as an officer or director of any investment adviser. The Commission's order also bars Palombo from serving as a trustee, officer or director of any registered investment company and requires him to pay $100,000. The SEC's civil fraud complaint against Tambone and Hussey is pending in federal court. The Commission's administrative order against Columbia Advisors and Columbia Distributor finds that, from at least 1998 through 2003, Columbia Distributor secretly entered into arrangements with at least nine companies and individuals allowing them to engage in frequent short-term trading in at least seven Columbia funds. In connection with certain of the arrangements, Columbia Distributor and Columbia Advisors accepted so-called "sticky assets"- long-term investments that were to remain in place in return for allowing the investors to actively trade in the funds. Columbia Advisors knew and approved of all but one of the arrangements and allowed them to continue despite knowing such short-term trading could be detrimental to long-term shareholders in the funds. The special arrangements were never disclosed to long-term shareholders or to the independent trustees of the Columbia funds. In addition to trading made pursuant to specific arrangements, the Commission's order finds that Columbia allowed or failed to prevent hundreds of other accounts from engaging in a practice of short-term or excessive trading. Many of the arrangements and trades were directly contrary to representations made in fund prospectuses that the funds did not permit short-term or excessive trading. By placing their own interests in generating advisory fees and commissions from short-term or excessive trading above the interests of long-term shareholders to whom this trading posed a risk of harm, and by failing to disclose these arrangements and trading, Columbia Advisors and Columbia Distributor engaged in fraudulent conduct and Columbia Advisors breached its fiduciary duty to act at all times in the best interests of the Columbia Funds' shareholders. The SEC's enforcement investigation of this matter was conducted in cooperation with the Office of the New York Attorney General. Contacts: Walter G. Ricciardi (617)-573-8934 David P. Bergers (617) 573-8927 Celia D. Moore (617) 573-8976 http://www.sec.gov/news/press/2005-15.htm Home | Previous Page Modified: 02/092005

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